_1_11zon.webp)
According to UBS’s 2024 Global Family Office Report, private equity accounts for an average of 21% of family office portfolios worldwide. Institutional investors, such as U.S. university endowments and large pension funds, sometimes allocate an even larger portion of their portfolios to private equity. This trend reflects the growing role of private markets in the construction of long-term portfolios.
However, these allocations do not constitute a model applicable to all investors. The proportion of private equity in a portfolio depends on many factors.
Should you allocate 5%, 15%, or 30% of your assets to private equity? Is there an ideal percentage?
This article explains why there is no one-size-fits-all answer, what criteria can be used to build a coherent portfolio, and how institutional investors approach this issue.
Is there an ideal percentage of private equity in a portfolio?
The answer is simple: no.
There is no single percentage allocation to private equity that would suit all investors. The role of this asset class depends primarily on the overall wealth management strategy, not on a predefined threshold.
Wealth management professionals generally think in terms of asset allocation. Before determining what portion can be allocated to private equity, they analyze, among other things:
- the investor's wealth management goals;
- his investment horizon;
- its liquidity needs;
- its risk profile;
- the composition of its existing assets.
Only after this analysis is it possible to assess whether private equity is a suitable investment and, if so, what role it might play within a diversified portfolio.
Why is this question being raised today?
Considerations regarding the role of private equity in a portfolio take place against the backdrop of evolving financial markets and asset allocation strategies.
For several decades, portfolio construction relied primarily on a mix of publicly traded stocks and bonds.
This approach, often illustrated by the "60/40" portfolio, has long served as a benchmark for many investors.
However, the markets have changed significantly. Recent episodes of rising inflation, higher interest rates, and increased correlation between stocks and bonds have led many investors to seek out new sources of diversification.
At the same time, an increasing share of economic value creation has shifted toward unlisted companies. Many companies remain private for longer than before, as explained in research by S&P Global, while institutional investors are gradually increasing their exposure to private markets.
This trend explains the growing interest in private equity as part of long-term wealth management strategies.
The goal is not to replace traditional assets, but to complement an asset allocation in order to diversify the drivers of value creation.
Diversification Beyond Listed Markets
Private equity allows investors to invest in companies that are not accessible through traditional financial markets.
For some investors, this exposure offers a way to diversify their portfolios beyond publicly traded stocks, real estate, or bonds. The drivers of value creation rely more on the growth of the companies in which they invest than on day-to-day market fluctuations.
This complementarity explains why private markets are playing an increasingly important role in the portfolios of long-term investors.
An Allocation Before Making Investment Choices
Institutional investors generally do not start by choosing an asset class.
They first define their investment objectives, liquidity constraints, and investment horizon before constructing a coherent asset allocation across different asset classes.
Private equity fits into this framework. It is one possible component of a wealth management strategy, but it does not replace listed stocks, bonds, or other assets in a portfolio.
Why is a 15% allocation often mentioned in discussions about private equity?
While there is no universal percentage for private equity that applies to all investors, numerous academic studies on asset allocation— such as the study by Nicola Giommetti and Morten Sørensen—examine the role this asset class can play in a diversified portfolio, taking into account, in particular, its risk and illiquidity constraints.
With this in mind, the discussion paper published by the Chief Investment Officer ofAltaroc suggests an allocation of around 15% as a starting point for a retail investor witha long-term investment horizon and the ability to set aside a portion of their assets.
This approach is based on an analysis of academic research, the practices of institutional investors, and the specific characteristics of private equity.
However, this allocation is neither a general recommendation nor an allocation suitable for all investors.
Itillustrates a portfolio-building approach that must always be evaluated in light of the objectives, assets, and constraints specific to each situation.
A Balance Between Diversification and Liquidity
The main challenge is to strike a balance between the potential benefits of diversification and the constraints specific to private equity, particularly its long investment horizon and illiquidity.
Unlike institutional investors, individual investors generally need to keep a significant portion of their assets in readily accessible forms in order to cover day-to-day expenses, unexpected costs, or short- and medium-term plans.
In this context, an allocation limited to unlisted assets makes it possibleto gradually incorporate this asset class while maintaining a level of liquidity appropriate to the portfolio’s needs.
An approach inspired by institutional investors
Institutional investors have long placed a high priority on private markets in their portfolios.
According to UBS's 2024 Global Family Office Report, private equity accounts for an average of 21% of family office portfolios worldwide.
Some U.S. university endowments have even higher asset allocations, built up over several decades and tailored to liquidity constraints that are very different from those of an individual investor.
These examples illustrate how long-term investors structure their portfolios. However, they do not serve as a model that can be directly applied to all investors.
An allowance that changes based on net worth
The role of private equity may also evolve over time.
As their wealth grows and liquidity constraints ease, some investors chooseto gradually increase their exposure to unlisted assets as part of a diversified wealth management strategy.
Conversely, an investor who anticipates short-term financing needs or whose portfolio is already heavily concentrated in illiquid assets may opt for a different asset allocation.
That is why the issue of the percentage cannot be separated from a broader discussion of heritage and the objectives being pursued.
What criteria are used to determine the allocation of private equity in a portfolio?
The issue of asset allocation cannot be resolved with a single percentage. Wealth management professionals generally analyze several criteria before assessing the role that private equity can play in a wealth management strategy.
Wealth Management Goals
The first criterion is the purpose of the investment.
Preparing for retirement, passing on an estate, building long-term wealth, or financing a medium-term project do not lead to the same asset allocation decisions.
Private equity may be appropriate when it aligns with an objective that is consistent with its investment horizon and liquidity level.
The Investment Horizon
Private equity is an asset class designed for the long term.
Investments are generally held for several years, giving management firms the time needed to support the companies' growth before they are sold.
The longer the investment horizon, the more feasible it becomes to consider exposure to unlisted assets.
Liquidity Needs
Illiquidity isone of the key characteristics of private equity.
Before including this asset class in a portfolio, it is essential to ensure that short- and medium-term liquidity needs are covered by other components of the portfolio.
This approach helps preserve the investor's financial flexibility while enabling long-term investing.
Asset Diversification
Private equity is intended to complement an investment portfolio, not to replace other asset classes.
It is typically included alongside cash, bonds, publicly traded stocks, and real estate to diversify the portfolio's value drivers.
This complementarity isone of the key lessons to be learned from the asset allocation strategies implemented by institutional investors.
The percentage isn't everything: the selection of fund managers remains crucial
Determining the role of private equity in a portfolio is the first step. However,allocation is only part of the equation.
Unlike public markets, where many investors can gain similar exposure through indices, private equity is characterized by wide performance variation among funds, as highlighted in particular in Bain & Company’s Global Private Equity Report 2026.
The results achieved therefore depend not only on the portion of the portfolio invested in this asset class, but also on the quality of the selected management companies.
Academic studies on private equity regularly highlight this variation in performance, which is one of the distinctive features of private markets.
The quality of portfolio managers influences portfolio performance
Asset management firms do notall invest using the same strategies or with the same level of expertise.
Some specialize in a particular industry, while others focus on a specific geographic area or market segment.
Their ability to select companies, support executives, and create operational value can have a significant impact on performance.
This reality explains why institutional investors devote a significant portion of their resources to analyzing and selecting management teams before investing.
Allocation and selection are two complementary decisions
Developing a wealth management strategy is not just about determining the percentage of private equity.
There are generally two complementary decisions:
- the allocation decision, which involves determining the place of unlisted assets within the portfolio;
- the selection decision, which involves choosing the management companies or funds in which to invest.
These two aspects are inseparable. A well-balanced asset allocation alone is not enough to ensure the quality of a wealth management strategy.
An approach similar to that of institutional investors
Institutional investors rarely think in terms of the performance of a single fund.
They generally build diversified investment portfolios spread across multiple vintages, multiple strategies, and multiple management firms.
This approach aims to mitigate specific risks while diversifying the sources of value creation within private markets.
She points out that private equity is valued first and foremost from a portfolio and long-term perspective.
Why is it beneficial to consider this issue within the context of a comprehensive approach to heritage?
The issue of the percentage of private equity cannot be addressed in isolation from the overall portfolio.
An appropriate asset allocation depends on many factors: investment objectives, existing assets, liquidity needs, investment horizon, and other assets already held.
That is why wealth management professionals generally take a holistic view of the entire portfolio rather than focusing on a single asset class.
.webp)
.webp)
.webp)
